Of course, nothing about Trump’s presidency to date has followed any precedent that came before him (not in the US, anyway). The unpredictability and all-round volatility created by his style of leadership has been well-established.

Whether the market will recover regardless of Trump remains to be seen. In 2018, the ‘Trump bump’ had a significant effect on markets, and for the first half of the year it was largely positive. This has been attributed to tax cuts (which boosts companies’ after-tax profits and stock valuations) as well as his deregulation agenda prompting a bullish market.

It’s impossible to know whether the slump (which has been called the ‘Trump slump’) we are currently in will continue or whether the markets will follow well-trodden path of bear markets preceding a sharp rebound.

Weak Australian dollar a plus for ASX gold plays

The Australian dollar has been weakening for some time, dropping to US$0.70 by the end of 2018.

With that, the price of gold (in AU dollars) has been on the rise, and has enjoyed a huge spike to kick off the beginning of 2019. It peaked at $1851.78 an ounce on January 2:

Small-cap gold miner Ramelius Resources (ASX:RMS) is up ~24% since the year end. Fellow gold small-cap Dacian Gold Ltd (ASX: DCN) is up ~23% in the last month. And the $18 billion-capped Newcrest Mining Ltd NCM:ASX is up a solid ~11% so far in 2019.

It’s oil good, mate?

Another area giving reasons to look on the positive side is the oil price rally that’s surprised everyone so far this year. The West Texas Intermediate (WTI) crude oil — used as a global benchmark — started the year at $45.41 and is now at $52.34:

In response, we’ve seen several small cap oil stocks on the ASX get a bump, including 88E Energy (ASX:88E) which is up 15% for 2019 so far, Red Emperor (ASX:RMP) which is up 26% for the year, and Invictus Energy Ltd (ASX:IVZ) which is up 22% YTD.

A few danger areas

While there’s reason to feel positive about 2019, there’s an equal number of reasons to err on the pessimistic side in regards to the stock market.

In Australia, the deflating housing market is a cause for concern, coupled with the strong possibility of the RBA following the Federal Reserve’s lead in raising interest rates.

With current high levels of household debt, both factors could affect the bounce-back of the stock market, as mortgage holders potentially feel the pinch of higher rates, combined with reduced valuations. Reduced liquidity in the housing market has the added downside of consumers holding less free cash to invest in stocks.

Then there’s the daunting question mark over what (else) Trump is going to do this year. How long will the government shutdown continue? Where will the China trade discussions ultimately end up? Will Trump be impeached, causing even more market-crippling volatility at a global scale?

In Australian politics, we also face the possibility of a change in leadership, with Scott Morrison and the NLP unpopular, according to December 2018 polls which put the Liberals at a 10-point deficit.

Labor’s potential return to the helm could arguably be good for some stocks, particularly those in green energy or sustainability — while the flipside is it would likely be worse for oil and gas stocks, with the possibility of greater climate change-related regulation.

Like the start of every new year, it’s impossible to tell what stock markets will do and how investors will respond to the multitude of complex factors we are set to face in 2019.

But history tells us that even if the downturn continues, there will be winners to be found somewhere in the cycle — it’s just a matter of finding the right opportunities at the right time.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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